When General Electric Co. (NYSE: GE) announced quarterly results on October 30, the company said it was reorganizing its faltering Power segment in a move to speed up both operating and financial improvements. The segment is being split into two businesses–a unified Gas Power business and a Power Portfolio business that includes other assets from the Power segment.
That process was begun earlier this month when the company announced a non-cash, pre-tax impairment charge of $22 billion related to the acquisition of Alstom. GE took another step forward Monday morning with the appointment of retired GE vice-chairman John Rice as chairman of the Gas Power business. Rice had a 40-year career at GE and retired shortly after former CEO Jeff Immelt was replaced.
According to the company’s press release, Rice will “advise the GE Gas Power leadership team as it establishes itself as a standalone unit.”
Scott Strazik has already been named as CEO of the Gas Power business and another GE veteran, Russell Stokes, will be named CEO of the Power Portfolio business.
GE CEO H. Lawrence Culp said:
One of my top priorities is positioning our businesses to win, starting with GE Power. The leaders we are announcing today are exceptionally well suited to lead our new Gas Power and Power Portfolio teams in their efforts to deliver better customer outcomes and improve their execution and cost structures. I am confident this is the right strategy and the right team to lead these businesses forward.
To say that GE’s Power segment has some troubles is a colossal understatement. Sales fell 33% year over year in the third quarter. For the first nine months of 2018 revenues are down 24% in the segment and profits are down 97% to just $64 million. The segment lost $631 million in the third quarter alone.
The segment continues to struggle as demand weakens for the huge turbines and generators it builds. On top of that recent execution, problems have made a bad situation worse. In late September, a flaw in the company’s newest turbines forced the closure of two generating plants in Texas. The repairs are said to take several weeks, and GE did not provide an estimate of the cost to repair the problem. In all, GE has sold about 80 of the turbines with 30 currently in operation. The company said at the time that it expects to have 60 in operation by 2020.
Fixing the recalcitrant turbines will take some time and cost GE some money, but solving the deeper problem of falling sales all across the industry may not be something that even the most experienced hands can achieve.
Rice’s appointment and the announcement of CEOs for the two power businesses have pushed GE stock up about 2% Monday morning to $8.02 in a 52-week range of $7.72 to $19.39. The 12-month consensus price target on the stock is $13.03.